OTTAWA (Reuters) - Forecast modeling is not all it’s cracked up to be, Canada’s new central bank chief says. So he’s employing a new tool: talking to “real people.”
And the real people of most interest to Stephen Poloz are Canada’s corporate chiefs who, in his view, hold the key to a more robust economy.
Poloz has an inside track to these leaders, having led Canada’s export credit agency before taking over from Mark Carney, the former Goldman Sachs banker whose market savvy made him a popular policymaker in the midst of the financial crisis.
Just weeks into the job, Poloz’ way of talking about the economy and the role of business in it reveals a world view that appears in synch with that of the private sector, which has been reluctant to sink money into new projects until there are guarantees the global economy is safe.
With business investment lagging the overall recovery from the 2008-09 recession, Carney at one point chided companies for sitting on what he called “dead money.”
Poloz clearly sympathizes with the corporate view. “I would be cautious, too,” he told reporters last week.
The goal is for businesses to loosen their grip on some half a trillion dollars in cash and invest the money to help boost growth. But it won’t be easy.
“People were badly burned at the time of the recession and as a consequence businesses have built up their cash reserves,” said Perrin Beatty, chief executive of the Canadian Chamber of Commerce and a former Conservative cabinet minister. “Confidence is at a higher level than it was at this point last year. But do people feel we’re clearly out of the woods? No.”
Business investment in Canada is growing more slowly than after previous recessions. Investment growth unexpectedly slowed in the second half of 2012 and spending intentions at the start of 2013 were the weakest since 2009, a central bank survey showed.
The slump was concentrated in the oil and gas and mining sectors, which represent about one-third of all business investment, with firms blaming uncertainty about global demand, pricing and market access.
Nobody expects a major shift in monetary policy under Poloz. Interest rates have been steady at 1 percent since mid-2010 and he emphasized in his first speech last week that he likely won’t cut rates. The best thing to do, he believes, is sit and wait for the United States and other export markets to strengthen.
It’s a hands-off approach that meshes with that of the Conservative government that appointed him and which wants the private sector to drive growth, rather than the government, the central bank or heavily indebted consumers.
But it may not sit well with those who want more urgent attention to problems like record-high personal debt or a jobless rate that remains above pre-crisis levels.
“It seems the Conservatives have chosen someone who is in line with their laissez-faire approach to our economy,” said Peggy Nash, the finance spokeswoman for the main opposition, the New Democratic Party.
Poloz is hardly breaking new ground by consulting with private sector leaders; Carney met with them regularly.
But he is the first to admit that the bank’s traditional forecasting models have failed and it must rely more on dialogue with industry.
One week before taking the helm at the central bank on June 3, Poloz attended a two-day meeting of members of the Canadian Council of Chief Executives, who lead companies with combined annual revenue of C$850 billion ($820 billion).
Already he is hearing that companies are not quite convinced that governments have all the problems under control, he said.
Preaching patience in his first speech, Poloz stressed that the first step to recovery was something Canadian policymakers had no control over: more U.S. demand for Canadian goods.
There are some encouraging signs, Poloz said, but it’s too early to “seal that deal.”
Only after exports recover will business confidence improve, followed by more investment and then new businesses starting up, in that order. It’s just a matter of time, he said.
It’s a line of thinking that industry lobby groups have cited for months.
Jayson Myers, who represents manufacturers and exporters as the head of Canada’s largest industry association, said he had been “pleasantly surprised” by Poloz, with whom he has worked for 15 years.
“It helps to have the practical experience about how international business and international finance are working,” he said. “What is really crucial is someone who can instill confidence in...the business investment community and I think Steve can do that.”
Editing by Janet Guttsman, Mary Milliken and Leslie Gevirtz